[Federal Register Volume 79, Number 28 (Tuesday, February 11, 2014)]
[Notices]
[Pages 8215-8217]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-02876]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71488; File No. SR-NYSE-2014-07]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Amending NYSE Rule 13 To Modify the Manner by Which MPL-ALO Orders 
Trade When Triggered by Arriving Interest

February 5, 2014.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on January 31, 2014, New York Stock Exchange LLC (``NYSE'' 
or the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I 
and II below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C.78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend NYSE Rule 13 to modify the manner by 
which MPL-ALO Orders trade when triggered by arriving interest. The 
text of the proposed rule change is available on the Exchange's Web 
site at www.nyse.com, at the principal office of the Exchange, and at 
the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is proposing to amend NYSE Rule 13 to modify the 
manner by which MPL-ALO Orders trade when triggered by arriving 
interest.
    The Exchange recently amended Rule 13 to add a new Midpoint Passive 
Liquidity Order (``MPL Order''), which is an undisplayed limit order 
that would automatically execute at the mid-point of the protected best 
bid (``PBB'') and the protected best offer (``PBO''). An MPL Order 
could interact with any incoming order, including another MPL Order, 
and could execute at prices out to four decimal places.\4\
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    \4\ See Securities Exchange Act Release No. 71330 (Jan. 16, 
2014), 79 FR 3895 (Jan. 23, 2014) (SR-NYSE-2013-71) (Order approving 
the MPL Order).
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    Pursuant to paragraph (e) of Rule 13 governing MPL Orders, users 
may designate an MPL Order with an add-liquidity-only (``ALO'') 
modifier (``MPL-ALO Order''). An MPL-ALO Order would not execute on 
arrival, even if marketable, but would remain non-displayed in the book 
until triggered to trade by arriving contra-side marketable interest. 
For example, if there is a buy MPL Order ``A'' for 100 shares resting 
on the book when a sell MPL-ALO Order ``B'' for 100 shares arrives, 
even though B is marketable

[[Page 8216]]

against A, both A and B remain undisplayed in the book until B is 
triggered to trade.\5\
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    \5\ The Exchange notes that this example would work the same if 
A were undisplayed non-MPL reserve interest eligible to trade at the 
same price as B.
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    The rule currently provides that an MPL-ALO Order would only be 
eligible to trade against incoming contra-side interest and would not 
interact with contra-side interest resting on the book. Accordingly, if 
B is triggered to trade by an arriving buy MPL Order ``C'' for 100 
shares, the rule provides that B would not trade with A. Rather, B 
would only trade with the arriving interest, C. The Exchange believes 
that it is appropriate, however, that when a resting MPL-ALO is 
triggered to trade, it should be eligible to trade with both the 
arriving interest that triggered the MPL-ALO Order and any resting 
contra-side interest that was present before the MPL-ALO Order arrived. 
The Exchange believes that permitting the MPL-ALO to interact with both 
arriving and resting contra-side interest is consistent with the 
Exchange's current allocation model, set forth in Rule 72, which 
considers all interest at a price point on parity by agent.\6\ It would 
also ensure that any resting interest that arrived before the 
triggering interest could participate in the execution.
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    \6\ Paragraph (a) of Rule 13 governing MPL Orders already 
specifies that MPL Orders are allocated on parity by agent 
consistent with Rule 72.
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    Accordingly, the Exchange proposes to amend paragraph (e) of Rule 
13 governing MPL Orders and delete the sentence, ``An MPL-ALO Order is 
only eligible to trade against incoming contra-side interest, and will 
ignore contra-side interest resting in the NYSE book'' and replace it 
with the following new rule text:

    If triggered to trade, an MPL-ALO Order will be eligible to 
trade with both arriving and resting contra-side interest, but will 
not trade with a contra-side MPL-ALO Order. If an MPL-ALO Order 
trades with resting interest, the MPL-ALO Order will be considered 
the liquidity providing order.
    As proposed, using the example above, when C arrives and triggers B 
to trade, B would be eligible to trade with both A and C. Consistent 
Rule 72(c)(viii), which provides that shares will be allocated in round 
lots, and Rule 72(c)(viii)(A), which provides that an allocation wheel 
for each security begins with the participant whose interest is entered 
or retained first on a time basis, because B is seeking an execution of 
100 shares and A was entered before C, B would execute with A only. 
Although the arrival of C triggered the MPL-ALO Order, consistent with 
the Exchange's allocation model, it would not receive an execution.
    The Exchange notes that if the execution size were larger than a 
round lot, C could receive an execution. Modifying the example above, 
if A were for 1000 shares, B were for 600 shares, and C were for 1000 
shares, assuming A and C are different participants on the parity 
wheel, B would execute 300 shares with A and 300 shares with C. 
Accordingly, both A and C would get an execution opportunity.
    The Exchange notes that an MPL-ALO Order is always a liquidity 
providing order. Accordingly, the Exchange proposes to amend the rule 
to specify that if an MPL-ALO Order trades with resting interest, the 
MPL-ALO Order will be considered the liquidity providing order. 
Finally, because an MPL-ALO Order is always a liquidity providing 
order, contra-side MPL-ALO Orders would never interact.
 2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) \7\ of the 
Act, in general, and furthers the objectives of Section 6(b)(5),\8\ in 
particular, in that it is designed to promote just and equitable 
principles of trade, remove impediments to and perfect the mechanism of 
a free and open market and a national market system and, in general, to 
protect investors and the public interest.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposal is designed to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because the modification to the manner that an 
MPL-ALO Order interacts with both arriving and resting interest is 
designed to harmonize the treatment of MPL-ALO Orders with the 
Exchange's existing allocation rules. Specifically, Rule 72 already 
provides that interest at a price point is allocated on parity by 
agent. The Exchange believes it is appropriate to apply this allocation 
model consistently across all executions at the Exchange, and not 
exclude any interest because of sequencing of orders. As such, a 
resting MPL-ALO Order, when triggered to trade, would be eligible to 
trade with both arriving interest that triggered the trade, as well as 
any resting interest that may have been present when the MPL-ALO Order 
arrived. The Exchange further believes that the proposed rule change 
promotes just and equitable principles of trade and protects investors 
and the public interest because it ensures that all interest eligible 
to interact with an MPL-ALO Order based on price would be considered 
for an execution opportunity once that MPL-ALO Order has been triggered 
to trade, consistent with existing Rule 72.
    The Exchange further believes that amending the rule text to be 
clear that MPL-ALO Orders would not interact with other MPL-ALO Orders 
removes impediments to and perfects the mechanism of a free and open 
market because it provides transparency in Exchange rules regarding the 
operation of MPL-ALO Orders. This aspect of the proposed rule change 
also promotes just and equitable principles of trade because it ensures 
that two orders designed to be liquidity providing will not execute 
against one another. Finally, the Exchange believes that amending the 
rule text to clarify that if an MPL-ALO Order trades with resting 
interest, the MPL-Order would be considered the liquidity providing 
order removes impediments to and perfects the mechanism of a free and 
open market because it provides transparency in Exchange rules 
regarding which interest would be considered liquidity providing in 
such a scenario.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange believes the 
proposed changes to the MPL-ALO Order will enhance order execution 
opportunities for member organizations by ensuring that MPL-ALO Orders 
would be eligible to interact with all interest available at a price 
point, consistent with existing Exchange rules governing order 
allocation.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \9\ and Rule 19b-4(f)(6) thereunder.\10\ 
Because the

[[Page 8217]]

proposed rule change does not (i) significantly affect the protection 
of investors or the public interest; (ii) impose any significant burden 
on competition; and (iii) become operative for 30 days from the date on 
which it was filed, or such shorter time as the Commission may 
designate, the proposed rule change has become effective pursuant to 
Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6) thereunder.\11\
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    \9\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \10\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change, along with a 
brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission.
    \11\ 17 CFR 240.19b-4(f)(6)(iii).
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    A proposed rule change filed under Rule 19b-4(f)(6)\12\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\13\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Exchange stated that 
it believes that waiver of the 30-day operative delay is appropriate 
because the Commission has already approved the adoption of the new MPL 
Order type. In addition, the Exchange stated that it has not yet 
implemented the MPL Order out of concern that the existing rule text 
would limit the opportunities for execution. By waiving the operative 
delay, the Exchange would be able to expeditiously make MPL Orders, 
including MPL-ALO Orders, available to member organizations in a manner 
that is consistent with existing Rule 72, thereby enhancing order 
execution opportunities for all member organizations. Thus, the 
Exchange believes that the proposed rule change would protect investors 
and the public interest because it would enable all interest that is 
eligible to interact at a price point to be considered for a trade with 
an MPL-ALO Order. For these reasons, the Commission believes that 
waiving the 30-day operative delay is consistent with the protection of 
investors and the public interest. Therefore, the Commission designates 
the proposed rule change to be operative upon filing.\14\
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    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ 17 CFR 240.19b-4(f)(6)(iii).
    \14\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings under Section 19(b)(2)(B) \15\ 
of the Act to determine whether the proposed rule should be approved or 
disapproved.
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    \15\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSE-2014-07 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.
    All submissions should refer to File Number SR-NYSE-2014-07. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSE-2014-07 and should be 
submitted on or before March 4, 2014.
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    \16\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-02876 Filed 2-10-14; 8:45 am]
BILLING CODE 8011-01-P